Disclosure to Promote the Right To Information

Whereas the Parliament of India has set out to provide a practical regime of right to information for citizens to secure access to information under the control of public authorities, in order to promote transparency and accountability in the working of every public authority, and whereas the attached publication of the Bureau of Indian Standards is of particular interest to the public, particularly disadvantaged communities and those engaged in the pursuit of education and knowledge, the attached public safety standard is made available to promote the timely dissemination of this information in an accurate manner to the public.

इंटरनेट मानक

“!ान $ एक न' भारत का +नम-ण”Satyanarayan Gangaram Pitroda

“Invent a New India Using Knowledge”

“प0रा1 को छोड न' 5 तरफ”Jawaharlal Nehru

“Step Out From the Old to the New”

“जान1 का अ+धकार, जी1 का अ+धकार”Mazdoor Kisan Shakti Sangathan

“The Right to Information, The Right to Live”

“!ान एक ऐसा खजाना > जो कभी च0राया नहB जा सकता है”Bhartṛhari—Nītiśatakam

“Knowledge is such a treasure which cannot be stolen”

“Invent a New India Using Knowledge”

है”ह”ह

IS 10400 (1992): Glossary of terms in inventory control[MSD 4: Management and Productivity]

Indian Standard

GLOSSARY OF TERMS IN INVENTORY CONTROL

( First Revision )

UDC 658’787’3 : 001’4

6 BIS 1992

BUREAU OP INDIAN STANDARDS MANAK BHAVAN, 9 BAHADUR SHAH ZAFAR MARG

NEW DELHI 110002

December 1992 Price Group 2

Management and Productivity Sectional Committee, MSD 4

FO_REWORD

This Indian Standard ( First Revision ) was adopted by the Bureau of Indian Standards, after the draft finalized by the Management and Productivity Sectional Committee had been approved by the Management and Systems Division Council.

This standard was first published in 1983.

Organizations in developing economies generally tend to have excessive inventories at all stages, namely, finished goods, goods in transit, in-process inventories, pre-use inventories, and inventories awaiting disposal being surplus/obsolete. Inventory control is a function ~of materials management which helps in optimizing stocks consistent with requirements.

This glossary is intended to minimize confusion by rationalizing existing terms and their meanings.

The terms defined in this standard are to be linked with the terms defined for other functions of materials management.

IS 10400 : 1992

Indian Standard

GLOSSARY OF TERMS IN INVENTORY CONTROL

( First Revision )

1 SCOPE

1.1 This standard gives defiuitions of terms relating to inventory control.

2 BASIC TERMS

2.1 Inventory

Inventory refers to the stock on hand at a given point of time ( a tangible asset which can be seen, weighed or counted ). It refers to the stock in hand and work-in-progress. In the most general sense, inventory is an idle resource. The financial expression is inventory in number of days.

2.2 Inventory Control

A functional activity the objective of which is to minimize the total costs of maintainitrg inventories and of acquiring them in order to render the stipulated level of service. This term is also referred to as stock control.

2.3 Inventory Management

That aspect of the overall management function that determines and implements inventory policies.

2.4 Inventory Policy

A definitive statement regarding the philosophy of inventory management; a policy stating when to procure and how much to procure, usually to ensure that the sum of all costs associated with the inventory process will be minimized. Criteria other than cost are also sometimes used, for example, goodwill etc.

3 INVENTORY CLASSIFICATION

3.1 Incoming Materials

3.1.1 Raw Materials

Basic materials for processing/conversion into finished goods, for example, pig-iron, coke, lime stone, iron ore, MS rods, PVC resin, paper, etc.

3.1.2 Bought-out Components

Items not manufactured/fabricated by the organization but used with or without further processing and/or packing the finished product.

3.1.3 Stores in Transit

Stock that has left the premises of the supplier, but has not reached the buyer.

3.2 Work-in-Progress

Partly manufactured/processed material awaiting further manufacturing/processing between two operations and are in the process of being tfabric- ated or assembled into finished products, inclu- ding materials lying with sub-contractors and material lying in shop floor for further processing or assembly.

3.3 Finished Goods

The complete units and the assemblies carried in stock ready for delivery to customers or for trans- fer to other plants or for own use. Generally, they are items that have been produced by the organization, although they may include com- plete items purchased for resale.

3.4 Maintenance, Repair and Operating Supplies (MRO)

3.4.1 Consumables

Materials which are required for use in the pro- cess but are not the inputs for finished goods, like coolants, lubricants, cleaning materials, solders, fluxes, etc.

3.4.2 Expense Items

Frequently used items of small unit [value and also small aggregate consumption value. Generally very limited control is called for issue of such items, for example, cleaning agent, pencil, pins, etc.

3.4.3 Insurance Spares

Spares of items of prohibitive high stock-out costs but likely to be rarely required during the normal working life of the machine, equipment, assembly or any other thing of which the spare forms a part, for example, tail stock of a lathe machine.

3.4.4 Spares

A duplicate kept or carried in reserve of an item or of a sub-assembly or component thereof, for example, fan belt, stepany, etc.

1

IS 10400 : -199z

4 INVENTORY ANALYSIS 5.2 Average Iuventory

4.1 A B C Analysis The average level of inventory during the period under consideration. For an accounting order,

The technique used to classify items into three it is worked out as the sum of 12 consecutive classes A, B and C based on annual usage value. monthly averag,c inventory values divided by 12. Class A covers about 10 percent of the items with highest annual usage value which in aggregate 5.3 Consumption Rate generally account for over 70 percent of the total annual Gage value of all items. Class C! covers about 70 percent of the items which account for up to 10 percent of the total annual usage value. The remaining about 20 percent items are classified as class B.

Actual consumption of an item per unit of time.

4.2 F S N Analysis

The technique used to classify items into three classes in the descending-order of their frequency of issue from stores in terms of the number of transactions made per unit time. Here, F stands for fast moving, S for slow moving and N for non-moving items.

4.3 H M L Analysis

The technique used to classify items into three classes in the descending order of their unit cost. Here, H stands for high, M for medium and L for low unit cost items.

4.4 S D E Analysis

The technique used to classify items into three classes in the descending order of ‘ease of availability’ with which supplies can be obtained. Here, S stands for scarce, D stands far difficult and E stands for easily available items.

4.5 V E D Analysis

The technique used to classify items into three classes in the descending order of their criticality for the organizations, performance as a whole. The criticality may be either technical or environ- mental. Here, V stands for vital items in the absence of which the stock out costs would be very high, E for essential and D for desirable items.

4.6 X Y Z Analysis

The technique similar to ABC analysis, but the basis is actual stock position at the time of analysis. If the stock values are very high, they are classified as X-class ( over 70 percent of stock value ) and need special efforts to reduce the inventory level. Y-class and Z-class items have medium stock and low stock values respectively.

5 REPLENISHMENT SYSTEM

5.1 Annual Usage

Number of units of an item consumed during the accounting year. This term is also used to denote the value of such usage.

5.4 Economic Order Quantity ( EOQ )

The quantity of a product which should be ordered at one time so as to minimize the sum of ordering costs and inventory carrying costs. The term ‘optimum lot size’ is also used sometimes. The EOQ may be calculated from the following equation:

EOQ = J

2AS cI

where

A=

s=

I=

c=

Annual consumption in units,

Ordering Cost in rupees per order,

Inventory carrying cost as a fraction of the average inventory, md

Unit cost

NOTES

1 Sometimes the ordering costs includes only those components of costs which vary directly with the increase in thr: number of orders and the inventory carrying cost includes only those constituents of costs which very directly with the increase in average inventory cost. ‘The EOQ so calculated, does not change significantly from the above value and may be used for the purpose of inventory control.

2 If ‘A’ is taken as annual consumption value, the EOQ in terms of value is then calculated as follows:

2AS EOQ ( Value ) =

J- 1

5.5 Inventory Carrying Cost

The cast of holding inventories. The major constituents are the costs of capital locked up in form of inventories, deterioration, obsolescence, space, personnel, insurance, security and other related costs. This is usually represented as a percentage.

5.6 Lead Time ( -LT )

The actual or expected time between initiation and fulfilment of an indent. The LT consists of several sub-LTs, such as suppliers/manufacturing LT, transportation LT, administrative LT. Some of the sub-LTs constitute the external LTs and some constitute the internal LT.

5.7 Maximum Level

The sum of the safety stock and consumption during lead time and review period of an item.

2

5.8 Ordering Cost

The cost incurred in placement of a purchase order from the time demand is received in the purchase department to the time Items are taken in the stores ledger and includes salaries, freight, insurance, handling, clearing, forwarding, inspec- tion and other incidental charges. It is expressed as rupees per order.

5.9 Periodic Review System

Under this system, certain number of items are reviewed for ordering at fixed intervals called review period. This is also called ‘P’ system. It is calculated as

Optimum Review Period = J

288 S ACT

5.9.1 Periodic Review System with Variable Order Quantity

Under this system, an order of quantity equal to the difference between the maximum level and the quantity at hand is placed at the time of review.

5.9.2 Periodic Review System with Fixed Order Quantity

Under this system, an order equal to a fixed quantity, i.e., EOQ is placed at the time of review if the quantity at hand is below the reordering limit. If the quantity at hand is above the reordering limit, no order is placed.

Reordering Limit = Safety Stock + Consump- tion during lead time + Consumption during half review period

5.10 Re-ordering Level ( ROL )

The sum of the safety stock and the consumption during normal lead time. It represents the stock level at which action is initiated to re-order the item.

5.11 Re-ordering Level System

In this case, an order is placed for the quantity equal to the economic order quantity as soon as the stock level reaches re-ordering level. This is also sometimes called fixed order system.

5.12 Safet) Stock/Buffer Stock

The inventory kept to provide protection against the fluctuations in demand and in lead time or fulfilling cycle time. Buffer stock is a synonym for safety stock. Sometimes it is also called minimum level. In case the demand remains almost steady the safety stock may be calculated as:

Safety Stock = R ( L - 1 )

IS 10400:1992

where

R = Rate of consumption,

L = Maximum lead time, and

1 = Normal lead time

There are other statistical formulae which may be used if wide uncertainty both in demand and lead time is predicted.

5.13 Stock Out

Non-availability of materials or products that are indented for.

5.14 Stock Out Cost

The total costs incurred due to non-availability of a particular material or product when needed. In the case of finished goods, this includes cus- tomers, goodwill and/or the net profit lost. Stock- outs of in-process and the pre-use materials may result in stock-outs of the finished goods besides the costs of under-utilized capacity.

5.15 Two-Bin System

A type of reorder level system in which inventory is carried in two bins, one is called service bin and the other one is called working bin. A replenishment quantity is ordered when the working bin is empty. When the supply is received the service bin is refilled first and the excess is put into the working bin. This term is also sometimes used to describe any fixed order system even when physical ‘bins’ do not exist. This method is usually adopted for low annual usage value ( AUV ) items.

6 STORES PRICING SYSTEM

6.1 FIFO ( First-in First-out )

In this method, the costs of material ferred to the item in chronological receipt.

6.2 LIFO ( Last-in First-out )

In this method, the costs of ferred to the item in reverse of receipt.

6.3 Standard Pricing System

material

are trans- order of

are trans- chronological order

A method of valuation by which items are priced at a predetermined standard rate for a predeter- mined period.

6.4 Weighted Average Method

This method consists of recalculating an average price each time a new consignment is received at a new price. Both the quantities and prices are considered for calculation, since the prices fluctuate and the order quantities vary.

3

IS 10400:1992

7 OTHER TERMS

7.1 Bin Card

It is perpetual inventory record card which gives a continuous account of the incoming material, outgoing material and the balance on hand. The card is normally tagged to the bin where the material is stored or filled in at a central place in stores with the actual location of the correspond- ing material clearly marked on it.

7.2 Catalogue

A systematic list of items giving part number, description, price, etc.

7.3 Codification

A form of the identification of reference which serves the dual purpose of establishing in a sys- tematic manner the unique and complete identity of an individual item and/or bringing out its similarity with other products. It may consist of a brief and systematic combination of letters, numerals and/or symbols. A systematic code used in conjunction with a key for decoding and assisting identification of an item will enable its characteristics to be known.

7.4 Goods Received Note ( GR Note )

A written intimation acknowledging/certifying the receipt of materials. It is also called materials receipt note ( MR Note ).

7.5 Indent

A prescribed form describing the indentors requi- rements of inventory items ( see also 7.13 ).

7.6 Indentor

The person, department or organization who raises the indent.

7.7 Inventory Turn-Over Ratio

The annual sales turn-over divided by the average inventory.

7.8 Just-in-Time ( JIT )

JIT is an integrated system of managing the flow of resources in such a manner that the resources reach the user at the time of use.

7.9 Lumpy Demand

Demand in lumps at a time.

7.10 Material -Requirement Planning

It is a technique which uses the bill of material to explode the master schedule for products or end items to develop a plan for production or procure- ment of components or materials needed to sup- port the master schedule. It uses the bill of material, lead time, lot sizing rules and inventory availability information.

7.11 Obsolete Inventory

Inventory which has lost its usefulness or worth to the current possessor as a result of changing over to different and/or more economical products, or change in technology.

7.12 Shelf Life

The expected period of time during which an item when stored in the specified manner will retain its quality/performance.

7.13 Stores Requisition

Authorization usually in a prescribed form to the stores for issue of material.

7.14 Stores

A place designated for keeping inventories.

7.14.1 Raw Material Store

A place designated for keeping raw material inventory.

7.14.2 In-process Store

A place designated for keeping in-process goods inventory.

7.14.3 Finished Goods Store

A place designated for keeping finished goods inventory.

7.14.4 Quarantine Stores

A place designated for keeping inventories of disputed items.

7.15 Stock Taking

A process of physically verifying inventory in order to check whether the actual quantities tally with the documented figures. This is also called stock verification.

7.15.1 Perpetual Stock VeriJication

Stock”‘verification wherein inventory is checked continuously rather than once a year. Normally, it may be taken when an item reaches its reorder level or when new stock is received or on regular basis, usually more frequently for high value or fast moving items and less frequently forl.low value or slow moving items.

7.15.2 Annual Stock Taking

Stock verification wherein inventory is checked once in a year. Normally it is taken at the end of the financial year.

7.16 Stock Verification Report ( SVR )

A report filled in by the stock verihers at the time of stock varification. It indicates variations, if any, between the physical stock and the ledger record.

7.17 Surplus Inventory

When the quantity of an item in stock is more than the predetermined maximum level, the excess holding is surplus inventory.

4

Standard Mark

The use of the Stahdard Mark is governed by the provisions of the Bureau qf Indian Standards Act, 1986 and the Rules and ~Regulations made thereunder. The Standard Mark on products covered by an Indian Standard conveys the assurance that they have been produced to comply with the requirements of that standard under a well defined system of inspection, testing and quality control which is devised and supervised by BIS and operated by the producer. Standard marked products are also continuously checked by BIS for conformity to that standard as a further safeguard. Details of conditions under which a licence for the use of the Standard Mark may be granted to manufacturers or producers may be obtained from the Bureau of Indian Standards.

Bureau of Indian Standards

BIS is a statutory institution established under the Bureau of Indian Standards Act, 1986 to promote harmonious development of the activities of standardization. marking and quality certification of goods and attending to connected matters in the country.

Copyright

BIS has the copyright of all its publications:, No part of these publications may be reproduced in any form without the prior permission in writing of BIS. This does not preclude the free use, in the course of implementing the standard, of necessary details, such as symbols and sizes, type or grade designations. Enquiries relating to copyright be.addressed to the Director ( Publications ). B-IS.

Revision of Indian Standards :

lndian Standards are reviewed periodically and revised, when necessary and amendments, if any, are issued from time to time. Users of Indian Standards should ascertain that they are in possession of the latest amendments or edition, Comments on this Indian Standard may be sent to BIS giving the j following reference : ’ . *,.‘

Doc:No MSD 4(2) ‘, ‘I

t

Amend No.

Amendments Issued Since Publication . . *

Date of lssue Text Affected

i

BUREAU OF INDIAN STANDARDS

Headquarters:

Manak Bhavan, 9 Bahadur Shah Zafar Marg,‘New Delhi I I0002 Telephones: 331 01 31. 331 13 75 Telegrams : Manaksanstha

( Common to all Offices )

Regional Offices:

Central : Manak Bhavan, 9 Bahadur Shah Zafar Marg NEW DELHI I10002

Telephone

Eastern : l/14 C. I. T. Scheme VII M, V. 1. P. Road, Maniktola CALCUTTA 700054

Northern : SC0 445-446, Sector 35-C. C~HANDIGARH 160036

378499, 378561, 37 86 26, 37 86 62

53 38 43, 53 16 40, 53 23 84

Southern : C. 1. T. Campus, IV Cross Road, MADRAS 600113

Western : ‘Manakalaya, E9 MIDC, Marol. Andheri ( East 1 BOMBAY 400093,

{ 235 02 16, 235 04 42, 235 15 19. 235 23 15

i 632 92 95, 632 78 58, 632 78 91, 632 78 92

Branches : AHMADABAD, BANGALORE, BHOPAL, BHUBANESHWAR, COIMBATORE, FARIDABAD, GHAZIABAD, GUWAHATI, HYDERABAD, JAlPUR, KANPUR. LUCKNOW, PATNA, THLRUVANANTHAPURAM.

Printed at Printrade, New Delhi, India